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Traders awaiting relief from what many believe are excessive Section 31 transaction fees will probably have to wait a while longer.

"The problem is that the [federal government's] budget process has just started," said James Spellman, spokesman for the Securities Industry Association. "And no one in their wildest dreams could have imagined that the markets would have this level of volume, even just two years ago."

Section 31 fees are levied by the Securities and Exchange Commission at the rate of 1/300th of one percent on the cash value of each stock transaction. On a trade valued at $10,000, for example, that amounts to 33 cents.

Though a small sum, the overall amount collected is not insignificant. Extended to Nasdaq in 1996, the fees alone will raise an estimated $432 million in 1999, well in excess of the SEC's $341 million 1999 budget.

"The fee has turned into a tax on capital, [though it] was originally designed to fund SEC supervisory functions under the federal securities laws," noted Andrew N. Grass, Jr., senior vice president and general counsel for the Security Traders Association.

The Budget

Section 31 fees paid by Nasdaq market makers and exchange specialists are the second-largest collection by the SEC. The SEC's biggest revenue source comes from 6(b) registration statement fees, which will raise an estimated $1.04 billion in 1999. Miscellaneous SEC fees bring in an additional $50 million a year.

"It has now come to a point where they are collecting four times what the SEC's budget is," Grass said. "We believe this money belongs with the investor rather than the government."

So does Senate Banking Committee Chairman Sen. Phil Gramm (R-Texas)."The senator has viewed [Section 31 fees] less as a fee and more as a tax," said a source at Gramm's Capitol Hill office. "And an unfair tax at that."

So does Rep. Michael Forbes (R-N.Y.), who plans to re-introduce legislation to slash the fee to 1/600th of one percent. "It's a hidden tax, the wrong kind of tax, a tax on investment," said Forbes spokesman Tony Howard.

Stated Purpose

For that matter, no one seems to remember any argument in favor of collecting more in Section 31 fees than the government needs for the fee's stated purpose funding supervisory functions of the SEC.

"In the six years I was a reporter up here covering the SEC [for the Wall Street Journal], I never heard a cogent argument for why they should keep the money," said Christi Harlan, communications director at the Senate Banking Committee. "The SEC doesn't want this money either."

Of course, bound to live by the rules Congress sets for it, the SEC can't say that. "We just collect [fees] according to the way that Congress lays it out," said John Heine, a spokesman for the SEC.

Why does the SEC collect fees far in excess of its need? Why does the SEC turn collected fees over to the government's general fund, only to have it budgeted back to the SEC? Heine said, "Congress is the rationale."